Can you borrow from 401k in ch 13?

[Flamingo]

See my answer to wayne-o above in this thread at http://www.bkforum.com/showthread.ph...d=1#post126828

Would love an explanation of why what happened to my husband with his early retirement withdrawals was very different than what you describe.

The majority, if not all, 401(k) plans do not allow you to take more than one loan at a time. How was he able to do six? They must have been distributions and not loans and that is why you had the tax consequences to deal with.

[Flamingo]

Has anyone borrowed from their 401k while in ch 13? I know you cannot obtain new credit but that is borrowing your own money so is it ok?

I read through all the postings on this subject. The best, and I mean best, thing to do is not to borrow from your 401(k) at all; never, unless it is a dire emergency. First, talk to your attorney about the situation and what can be done. Taking a loan out of your 401(k) means a monthly payment over and above your other bills and if the amount is a few thousand dollars, you only have a five year limit to stretch that amount out as much as possible for payback. As others have said, if you should get fired or leave your job, if you cannot pay back that amount prior to the end of of that year back into your 401(k), you get hit with taxes and penalties as it becomes a distribution. You are taking a risk with all of that and also putting your Chapter 13 in jeopardy. When there are financial situations to deal with during a Chapter 13, your attorney is the best first source as to your particular situation. Remember, you are paying him/her to represent your interests during your Plan and they will help you all they can to get you through it.

Also, there is the reverse question of those wanting to contribute to their 401(k)s during a Chapter 13. Usually, as in our situation, I had stopped contributions to my 401(k) many months prior to filing since we needed the extra money. About 3 years into our Plan I asked my attorney if it was possible to contribute 1% into my 401(k) of my salary since my company matched 100% up to 3%. I was told it was OK but that if it created anything of a burden, to stop. I was able to handle it and now, almost two years out of our 13, I am contributing 6% of my salary which they match 100%. Always ask so you know you are doing the right thing as to your situation.

[lrprn]

The majority, if not all, 401(k) plans do not allow you to take more than one loan at a time. How was he able to do six? They must have been distributions and not loans and that is why you had the tax consequences to deal with.

Hubby says they each were loans against his 403B retirement account. Each one had different levels of interest charged with payments due once a month for five years. Don't know how he managed it - just know what the results were when we couldn't pay when first two came due in full - a whopping 10% tax hit on what was still owed.

I think we've highjacked the OP's thread long enough batting this around. Let's get back to his original question, shall we?

[doglover]

Don't ask don't tell

I didn't "borrow" from my retirement (TSP) I outright withdrew about half of what I have in there. They charged me 10% right off the top and then when I file my taxes I have to report my early withdraw and then the IRS will penalize me another 10%. As far as the bankruptcy is concerned; All our disposable income is going to the trustee, sometimes things come up, what are we supposed to do, we're human and %&#@ happens. I found out this guy at my work filed for Ch. 13 and some of the things he has done while in the Bankruptcy would have this board having a FIT to say the least. Nothing illegal at all but he is doing what he has to do for him and his family to make it. There are thousands and thousands of people who file bankruptcy and are paying back in a Ch. 13 and do what they gotta do to make it trough. Is it being dishonest....not always and in this case in my opinion not wrong by any means. The trustee knows that things are going to arise where you have to make ends meet. I see it like this.... it was MY money in retirement, if the Trusee asks if I took an early withdraw then I will definately tell him but if he dosen't ask then why bother with it, i'm not doing anything wrong. In my confirmation paperwork it didn't state anything about 401k, early withdraw, etc....Trustee is getting his money and I'm not acquiring new debt (two main things for a successful bankruptcy as my Trustee told me).

Just my 2 cents thats all.

[Flamingo]

I didn't "borrow" from my retirement (TSP) I outright withdrew about half of what I have in there. They charged me 10% right off the top and then when I file my taxes I have to report my early withdraw and then the IRS will penalize me another 10%. As far as the bankruptcy is concerned; All our disposable income is going to the trustee, sometimes things come up, what are we supposed to do, we're human and %&#@ happens. I found out this guy at my work filed for Ch. 13 and some of the things he has done while in the Bankruptcy would have this board having a FIT to say the least. Nothing illegal at all but he is doing what he has to do for him and his family to make it. There are thousands and thousands of people who file bankruptcy and are paying back in a Ch. 13 and do what they gotta do to make it trough. Is it being dishonest....not always and in this case in my opinion not wrong by any means. The trustee knows that things are going to arise where you have to make ends meet. I see it like this.... it was MY money in retirement, if the Trusee asks if I took an early withdraw then I will definately tell him but if he dosen't ask then why bother with it, i'm not doing anything wrong. In my confirmation paperwork it didn't state anything about 401k, early withdraw, etc....Trustee is getting his money and I'm not acquiring new debt (two main things for a successful bankruptcy as my Trustee told me).

Just my 2 cents thats all.

I understand where you are coming from but when you take a risk like that and do not report what is considered to be additional income during your Plan, your entire Chapter 13 Plan can be dismissed and you are back to square one before you filed, with all late fees and penalties added back in just minus whatever you paid into the Plan to the date of dismissal. When you report the early withdrawal on your tax return, it is shown as "income" for the year withdrawn. You will pay taxes on that amount plus the 10% penalty. While emergencies do arise, that is a big price to pay for the use of your own money. If you are having a hard time during your Chapter 13 and need extra cash, you should speak to your attorney about having your Plan adjusted if you are having that hard of a time. Our water heater went and we were allowed to skip a payment by the Trustee to have a new one installed. All it took was a phone call to our attorney and we supplied the estimate and proof of payment to the Trustee to show where the money went. Why risk your Chapter 13 and try to hide things? It's always best to ask your attorney before you do anything financially at all during your Plan.

[doglover]

Yes, I totally agree with you. BUT our Trustee made it very clear that payment be made each month by the 14th and NO exceptions. He dose not want to hear about cars broke down, kids dental bill, etc....I looked on PACER at the cases that were dismissed by our Trustee were because people didn't make 2 payments, some cases just 30 days late on 1 payment to the Trustee! My attorney told us before the 341 meeting how strict our Trustee is in this area of backruptcy. After I met him (Trustee) and the questions he asked and all he spoke to us about was our repayment plan and payments to him, the impression I got from them was that priority #1 is our payment to the trustee. Full amount and on time! Again I see what you are saying and yes it is a risk and all I can do is hope and pray that all will be well.